Saturday, July 31, 2010

Say it loud but not so proud -- no hush money here

No hush hush settlement here. This criminal fine is a small part of a total $1.6 BILLION penalty being paid by some of the big names in the global airline industry.

Northwest to Pay $38 Million Fine
Northwest Airlines has agreed to plead guilty to fixing prices on air-cargo shipments and will pay a $38 million criminal fine, the Justice Department announced Friday.

The department said Northwest Airlines Cargo engaged in a conspiracy to fix prices for shipments on routes between the U.S. and Japan from at least July 2004 to at least February 2006.

Northwest is now part of Delta Air Lines Inc.

Prosecutors said Northwest and other air-cargo shippers held meetings and conversations in the U.S. and elsewhere in which they agreed on shipping rates, in violation of federal antitrust law. The shippers also monitored and enforced each other's adherence to the price-fixing agreements, prosecutors said.

The Justice Department said 16 airlines have now pleaded guilty or agreed to plead guilty to fixing prices on air cargo, with criminal fines totaling more than $1.6 billion.

Air France-KLM paid a $350 million criminal fine in 2008, while British Airways PLC and Korean Air Lines each paid a $300 million fine in 2007.

Elsewhere, however, the article notes the hush money game continues.
In a related development this week, the parent of American Airlines agreed to pay $5 million to settle a U.S. class-action lawsuit brought by shippers who say they were overcharged by the airlines.

AMR Corp. admitted no wrongdoing and said it settled to avoid the cost of a U.S. trial.

What happens with all that money? Where does it go?

That was one of the first questions Guambat posed when he began this blog back in 2005. And he's never been satisfied that he really has a clue.

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Hankering for a rewrite of the credit meltdown

Barry Ritholtz turned his loving eye on a piece written by Hank Paulson in WaPo today, in which Paulson blames housing policy for the credit bubble and bust.

Here's a taste of what Hank said in his article:
we must have the fortitude to create a more level playing field between housing and other productive investments.

Fannie Mae and Freddie Mac should not be allowed to revert to their old form, crowding out private competition and putting taxpayers on the hook for failure while shareholders benefit from success. Reform should address the systemic risk they pose and should wean our mortgage finance system from its dependence on these institutions.

Placing Fannie and Freddie in conservatorship was, in my view, the most effective of the stimulus efforts undertaken in the past two years. This stimulus was aimed squarely at the driver of our financial and economic crisis: the decline of home prices.

Barry takes it apart, as usual, so much better than Guambat could ever, so his post is where you should be headed. But before you go, remember that it was Paulson who put Fannie and Freddie into conservertorship, and note these blasts from the past.

Risque business March 16, 2006
Riding a wave of wild trading, a frenzied merger market and some savvy investments, Goldman Sachs rolled over investor expectations to rack up almost $2.5 billion in profits, the most lucrative quarter in Wall Street history.

Goldman's $2.48 billion in net income, or $5.08 a share, was a 64 percent increase over the previous quarter

Surging income in proprietary trading and at the merchant banking unit - where Goldman bet its own money on deals - led the profit rise, but all of the firm's units reported at least double-digit growth.

The story behind Goldman's incredible gains appears to have been a willingness to take more risk - a lot more risk.

"Goldman is ramping up risk appetite to almost uncharted waters,"
said CreditSight's David Hendler.

Goldman's results are a strong boost for its boss, Hank Paulson, who raked in more than $38 million in total compensation last year.

Hendler said the profits may be coming from aggressive trading in sophisticated financial instruments devised by Goldman's own staff, including what he termed "new age" derivatives and complex "black box" structured products.

Up to 40 percent of Goldman's net income is currently at risk, up from an average of 30 percent last year, wrote Hendler in a recent report.

Ratings agency Standard & Poor's said this stellar performance came as all of Goldman's broader risk measurements - the so called VaR, or value at risk - increased.

What's in Santa's Sachs of gifts? Goldman? December 04, 2007
David Gaffen of the WSJ MarketBeat blog has begun the process of shaking the boxes in anticipation of what's under the tree. The tree in this case being the Big Freeze that Hank Paulson, now US Treasury Secretary, recently top Goldman Sachs guru, has been hoping to use to chill out the credit markets.

Ostensibly, the Big Freeze (Matrix, as Gaffen calls it) is meant to help out the poor small schmucks who got teased into ARM breaking mortgage deals. But more sensibly, as Gaffen notes, it is the really big boys, who stand to loose the only leg they have to stand on whilst the little guys only loose an ARM, that are the real intended beneficiaries of Santa's Sachs of goodies.

Gaffen blogs,

"commenters are wondering whether the Treasury’s plan isn’t so much about those on the bottom rungs with subprime loans as those who are leveraged to those loans in the first place.

Marc Chandler, chief currency strategist at Brown Brothers Harriman points out ... “We suspect the subprime problem has been exaggerated to obfuscate the real issue and the real threat to the capital markets,” he writes. “It is the old nemesis – leveraging.

“If we make the payment structure better, who wins? A few people that will eventually default anyways? Nope,” he writes. “The folks that sit on the bulk of the sub-prime related paper, those ‘so far’ untouched from the sub-prime crises. Yep. Goldman Sachs and their pals.”

Fannie Mae's Demise Rooted in the Swinging '60s: Amity Shlaes Sep 10, 2008
This week the news coverage focuses on identifying the implosion's [of Fannie and Freddie] possible catalysts.

One may be all the cash foreign governments had placed in so-called agency debt, the category that includes Fannie and Freddie bonds. My Council on Foreign Relations colleague Brad Setser notes that Treasury Secretary Henry Paulson probably acted with an eye to foreign markets when he announced the government takeover.

Another analysis says that Fannie and Freddie's failure is the result of crony capitalism. This is doubtless also legitimate: aside from Richard Baker, the Fannie critic who served in Congress representing Louisiana until this year, it's been hard to find a lawmaker not intimidated by the GSE arm- twisters.

Yet a third view is that Fannie and Freddie matter because they tell us that recent growth has been more illusory than real.

As Barry wraps up his post:
Paulson oversaw the greatest transfer of wealth in the history of mankind — from taxpayers to insolvent banks and their bondholders. His commentary is thinly veiled attempt to rewrite what actually occurred, and to shift his own sad role from conductor of the theft, to hapless victim of long standing government policy.

If this exercise wasn’t such a transparent attempt at self-exoneration, it would be amusing, Instead, it is merely pathetic.

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More hush money

It's not been long since we looked at the hush money paid by Dell ($100 million plus whatever executives had to pay) and Goldman Sachs ($550 million) -- in fact just a week ago -- and now Citigroup is upping the total by another ($75 million plus whatever executives have to pay).

Citigroup Said to Pay $75 Million to Settle SEC Subprime Case
The company made misstatements on earnings calls and in financial filings in 2007 about assets tied to subprime loans, the Securities and Exchange Commission said in a federal lawsuit yesterday in Washington.

“Even in late 2007, as the mortgage market was rapidly deteriorating, Citigroup boasted of superior risk-management skills in reducing its subprime exposure,” SEC Enforcement Director Robert Khuzami said in a statement. “The rules of financial disclosure are simple. If you choose to speak, speak in full and not half truths.”

Citigroup Inc. will pay $75 million to settle U.S. regulatory claims that it misled investors by failing to disclose billions of dollars in holdings tied to subprime mortgages while the housing crisis unfolded.

Citigroup’s former chief financial officer and head of investor relations agreed to pay a total of $180,000 for failing to disclose the risk.

Former CFO Gary Crittenden, who left Citigroup last year, agreed to pay $100,000 to settle claims he didn’t disclose the risk after getting internal briefings.

Arthur Tildesley, Citigroup’s former head of investor relations, will pay $80,000 to settle claims that he helped draft disclosures that misled investors, the SEC said. Tildesley now heads cross-marketing at Citigroup, according to the agency.

Citigroup, Crittenden and Tildesley agreed to settle the case without admitting or denying the SEC’s allegations.

“Mr. Crittenden is pleased to have resolved this matter,” said John Carroll, an attorney for Crittenden at law firm Skadden, Arps, Slate, Meagher & Flom LLP in New York.

Citigroup is pleased to “put this matter concerning certain 2007 disclosures behind us,” the company said.

All these companies were doing their version of Gods work, making money, rolling along, without anything but lip service to the "rules of financial disclosure", as was put above.

And now they take a slap on the wrist and walk away saying, "SEC and Investors, get thee behind me!"

Tracy Alloway provides quite an exposing run down on the kinds of non-disclosing disclosures Citigroup made in 2007 in FT Alphaville: Citi’s super senior subprime SEC slip

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Friday, July 30, 2010

The Oracle should have seen this coming

This story was presaged by Information Week previously, as noted by Guambat's alter ego.

Oracle Sued By Justice Department For Fraud
The Justice Department has sued Oracle, accusing the company of defrauding the government in a software contract valued at hundreds of millions of dollars in sales.

The department filed the complaint Thursday. The suit contends Oracle misrepresented its commercial sales practices in order to give government customers deals that were inferior to those given to commercial customers.

US accuses Oracle of software contract fraud
The suit alleges that Oracle Corp. and Oracle America Inc. defrauded the United States on a software contract with the General Services Administration (GSA) that involved hundreds of millions of dollars in sales.

"The contract required Oracle to update GSA when commercial discounts improved and extend the same improved discounts to government customers," the Justice Department said in a statement.

"The suit contends that Oracle misrepresented its true commercial sales practices, ultimately leading to government customers receiving deals far inferior to those Oracle gave commercial customers," it said.

Oracle Sued by U.S. in Case Claiming Overcharges
The U.S. lawsuit follows its intervention in a case filed in 2007 by Paul Frascella, a former Oracle employee who made similar claims. The False Claims Act lets private citizens sue on behalf of the government and share in any recovery. The Justice Department says it is cracking down on procurement fraud.

As Guambat recently noted, the new Financial Reform legislation extended that whistleblower concept beyond government contracting, into private industry.

Guambat is uncertain, from the news report, and too lazy to do the legal research (nothing in it for him in any event), whether the extension is only to businesses within the purview of the SEC. Even so, suits like this Oracle one can only embolden others to quickly jump in to take advantage of the outsourced financial regulation scheme.

When we seen the actions begin, we can say the Oracle foretold.

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Ni hao to a Grasshopper

Lynn: Guam Plays Pivotal Role in Globally Important Region
The realignment of forces on Guam is key to maintaining an effective U.S. presence in the Asia-Pacific region, the deputy defense secretary said here today.

“We must commit our forces carefully to ensure they are effective across the widest possible range,” Lynn said. “And Guam is the linchpin in our force structure strategy in this region.

The realignment on Guam is part of a larger U.S. posture shift in Asia, Lynn explained, as forces become more “geographically dispersed, operationally resilient and politically sustainable.”

Geography alone guarantees Asia a key role in world affairs since Asia and the Pacific take up more than half of the Earth’s surface, with 43 countries and 60 percent of the world’s population, Lynn said.

“Reflecting its importance, five of the seven bilateral defense agreements the U.S. has are with nations in Asia,” he said. “Without question, the rise of Asia in economic and military terms is the most significant change in the strategic environment for the United States.”

“We need the right mix of forces to address the increasing set of security missions across the region,” William J. Lynn III told an audience of local officials and community leaders while taking part in the University of Guam’s Presidential Lecture Series.

As the westernmost U.S. territory in the Pacific, Guam is centrally positioned in a region of increasing global importance, Lynn noted. The island offers access to U.S. allies and potential hot spots throughout the region – Guam is two-to-five hours by air and two days by ship from Japan, Korea, Taiwan, Philippines, Indonesia and other key western Pacific locations.

“If done effectively,” Lynn said, “our work will help safeguard our fellow citizens, ensure the long-term health of Guam and bring continued stability to the entire Pacific region. And these are things we all have a stake in.”

To graphically understand the statements and statistics Undersecretary Lynn referred to, see the maps showing the relative and near proximity of Guam to neighboring countries in this Guambat post. To give a flavor of it, this map shows Guam at the center of a circle (elongated by the location slightly north of the equator) with a radius 5000 miles, which is about the distance between the US states of New York and Hawaii.

Back before computers and internet, Mr and Mrs Guambat enjoyed watching that overly fictionalized modern western show Kung Fu, with David Carridine. Carridine played a sort of Chinese Monk/Warrior on a Crusade through the western US. Guambat did say it was fictional.

Carridine's character, named Kwai Chang Caine, was a hapa-Sino man, but in the many flashbacks to his young days in the monastery, his Master called him Grasshopper, or sometimes Young Grasshopper. Guambat reckons Master Yoda's Young Skywalker name is too close in cadence and connotation to be coincidence.

Guambat is now worried that a plague of Grasshoppers may be steaming their way to his Bayview Burrow, after reading this story:

U.S.-South Korea war games raise China's hackles
China views the military exercises in the Sea of Japan as a threat to its territorial integrity. Beijing's indignation appears calibrated to push back at U.S. dominance in the

"What will Americans feel if the Chinese or Russian military travel across the ocean to hold their exercises in the high seas not far from the coast of Florida, New York or California?" demanded an editorial writer in Tuesday's English-language China Daily.

China's reaction has been equally sharp regarding remarks Friday by Secretary of State Hillary Rodham Clinton in Hanoi suggesting that China submit to international mediation to resolve territorial disputes in the South China Sea. The Global Times, which has close ties to the Communist Party, accused the United States on Wednesday of trying to "ambush China in its backyard."

"China is protesting because they now feel powerful enough to do so," said Han Suk-hee, an expert on Chinese-North Korean relations at the Graduate School of International Studies at Yonsei University in Seoul. "They feel more mature as a superpower, ready to manage the world, certainly the seas off their own coastline."

"The U.S. and South Korea paid attention to China's worries and changed the location of the drill," Zhou Yongsheng, a professor from China Foreign Affairs University, wrote in Oriental Outlook, a government magazine. "It is not merely because the U.S. and South Korea were trying to 'give face' to China. It has shown China's power and impact in Northeast Asia is rising."

While Guambat prefers to think, and as history has shown, Guam is the Crossroads of the Pacific, others want to portray it as the Tip of the Spear. Either way, Crossroads or Spear, with all the US military buildup taking place now and planned over the next decade, China will take notice.

Whether China sees Guam as an insignificant but strategic bit of geography or a spear pointed at its soft underside, it will take an interest that has very much potential to unsettle Guambat's nervous system.

Guambat will take Chinese lessons. Ni hao and xie-xie very much.

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Tuesday, July 27, 2010

Wait, I know that picture

First it was the snakes.

Now its the spiders.

Guam is plagued by skewednews, the out of proportion kind.

And now this story from Discovery New, which Guambat was perusing when he came across the headline picture for the story. Guambat had seen it in his local newspaper maybe a week earlier. Twas a nasty looking spider.

From a ship overrun with spiders to bedbug infestations at major clothing stores, is this the time of plagues?
Recent headlines have reported bedbugs in Manhattan outlets of Victoria's Secret and Abercrombie and Fitch, a boat from Guam that was turned away from port because it was swarming with thousands of non-native spiders, and a bumper year for ants in the nation's capitol.

Do these infestations of crawlies have any connection, like the super-warm weather this season or the long-term warming of our climate?

Not much, say experts, although climate is driving certain insect population changes.

Infestations on ships are frequent occurrences that only occasionally get reported, experts said.

"I don't think it's unusual to have a lot of spiders on a ship as long as there is plenty of prey" Raupp said. "Spider populations are driven by the availability of prey."

Kimsey agreed, noting that she was once involved in the turning back of a ship at the Long Beach port that was "literally covered" with Asian gypsy moths, a species with the potential to decimate the U.S. landscape if it becomes established here
And so goes the story without another mention of Guam after the first sentence.

Still, you betcha Guam will now be called the island of snakes and spiders.

Ai adai.


When safety turns to sin

Greed is a deadly sin with many faces. We tend to think of it as a mindless appetite for ever more. It can also manifest as a slavish holding on to something that wants to slip away.

Something like "value" when markets are loosing their value.

In times like that, only the greedy stay around, lured on by the dreams of past profits and the prophets of future gains. There is no virtue in staying with a losing proposition. There is no virtue in throwing good money after bad, most especially when it is your hard earned savings.

It is the nature of things that they tend to shrivel and deteriorate. Savings do that too, and only the greedy ignore it.

Minnesota, God and the $190 million fraud
1,200 investors, and more than $190 million lost in just 3 years. It all began as market turmoil gained momentum in the run-up to the Great Recession, and investors were searching for a safe haven for their savings.

Minnesota money manager Trevor Cook and radio show host Pat Kiley said they had the answer, with the promise of solid returns and a no-loss guarantee. The Securities and Exchange Commission, however, calls it a "scheme to defraud perpetrated by Cook and Kiley."

Minnesota natives Mary Dingman, 62, and her sister Vicki Krisko lost nearly everything. Dingman worked as Cook's office manager, and then invested with him. "I did it because I thought it was safe," Dingman said. "I've lost everything ... He got my 401(k), savings account, my house, my life insurance account."

"People did not invest in this out of greed. They invested in it because they thought it was safe," said Kyle Garman who used to work for Cook as a salesman, and whose family lost nearly $4 million in the fraud.

Cook, 38, was head of Oxford Global Advisors and Oxford Global Partners, and touted risk-free returns of 10% to 12% through a foreign currency investment program that government regulators say he started in 2006.

"There's no risk. So we do not lose our client's money," Cook told investors in a promotional DVD obtained by CNNMoney.

Kiley, 72, used the airwaves to get the word out on his weekly Christian radio program, "Follow the Money." Kiley called his listeners "truth seekers" and appealed to their distrust of Wall Street and the government.

"I lied to investors about many things," Cook told a federal judge at his plea hearing.

Kiley claims he didn't participate in any criminal wrongdoing, and says he believed investor accounts were liquid at all times. Kiley also denies squandering money or mismanaging investors' funds.

"Pat Kiley never expected there was anything wrong with these investments. He continued to believe he was doing good for all his clients," Kiley's attorney told CNNMoney.


Of Dell and supplier side economics and illusory competition

The Register has done a fine piece by Andrew Orlowski exposing how Dell didn't sell its computers, it sold its customers. To Intel.

Practical monopoly power has its privileges, and you wonder how others with such power in the computer based cloud handle the same influence, given the notion that power tends to corrupt.

Guambat mentioned the Dell SEC settlement a few posts back, but assumed it was your run of the mill(ion) dollar financial frauds. Many thanks to Mr. Orlowski for explaining the fraud was on the PC market more than the financial market.

The Justice Department should have brought this case against Intel and Dell years ago.

Having the SEC do it now is sort of like how the IRS was used to bring in Al Capone when the police couldn't or wouldn't.

Dell's fraud settlement explodes PC market myths
On Thursday, Dell agreed to pay a settlement for fraudulent accounting from 2001 to 2006. The company admitted no wrongdoing, as is the custom in such settlements.

The SEC settlement casts the entire PC market in an entirely new light.

Intel was Dell's most important component supplier. Every ten years or so, Intel unveils a truly competitive processor architecture, from which the company reaps the reward for several years.

But there are times when Intel isn't so competitive.

So the supplier made financial arrangements (in the form of credit memos rather than "payments") to ensure its number one customer maintained exclusivity. These had been going on for many years in the form of 'Market Development Funds' - but new inducements (initially dubbed MOAP, or Mother Of All Programs) were introduced in around 2001, on top of the MDF programme. These were so great that over a five-year payment, the supplier ensured the purchaser traded in the black for five years.

Intel's rebates amounted to 38 per cent of Dell's operating profit in the fiscal year 2006, and rose to 76 per cent (or $720m) in one quarter alone, Q1 2007. While almost all of the Intel funds were incorporated into Dell's component costs, Dell did not disclose the existence, much less the magnitude, of the Intel exclusivity payments.

Knowing that Intel's processors were regarded as less competitive, Dell kept returning to Intel for better and better deals. Intel considered it a price worth paying. In 2003 Dell considered investing in AMD, filings reveal, and shifting a quarter of its CPU procurement to AMD. Intel's response was a new "Tactical and Strategic Fund" worth $258m for a year. Dell closed down the discussions.

Dell was getting lazy - and greedy. Dell began to see the Intel rebates as a financial instrument - to top-up its balance sheet. The arrangements were disguised on the balance sheet, while Dell maintained a "Strat Fund" - what the SEC calls a "cookie jar", that it could dip into at will.

"Dell would often seek additional rebates," SEC explains, "in order to close a gap between its forecasted and its earnings targets. Dell was quite open with Intel about the reasons it was requesting additional money".

For example, in Q4 FY 2004, Dell needed a $25m lump payment after forecasting a shortfall. Dell hadn't failed to hit an earnings target since 2001, and thanks to the payment, it duly met its forecast. None of this was known to investors; Dell CFO Kevin Rollins explained to investors it had met its targets because of efficiency savings and lower component costs. The SEC calls the latter claim "materially misleading"

In another quarter, a $70m lump payment was made so Dell could meet its forecast, in another, $125m. Intel even agreed an "Opteron Fund" worth $275m specifically to keep Dell from defecting.

Ironically, Intel was only six months away from shipping a competitive server processor - Woodcrest - when Dell finally announced AMD as a supplier in May 2006. Intel responded by lopping an arbitrary $250m from the funding arrangement. SEC notes:

"This dramatic cut in the MCP payments did not reflect any contemporaneous meaningful purchase of AMD processors or substitution of AMD processors for those of Intel. Rather, Intel's reduction in MCP payments reflected Intel's response to Dell's announcement of an intention to use AMD products in the future."
While vowing to put its customers' needs first, Dell was keeping competitive products away from its customers, in order to meet short term quarterly financial targets.

It's hard not to conclude that the PC processor market is now a monopoly cast in granite - and that the SEC settlement has come too late to introduce any meaningful competition.

When AMD ceased operating as an independent company in late 2006, it ended twenty years of independent competition (and for much of the time, litigation) against Intel.

AMD was originally an official Intel licensee, the second source supplier that IBM required, until 1986.

It settled all outstanding lawsuits against Intel for $1.25bn last year - about eight months' revenue of its final year as an independent company.

SEC notes somewhat ruefully that five previous antitrust investigations into Intel's market funds had failed to bring results. They certainly failed to bring the funding to light in time for AMD's best crack at the market - the years from 2001 to 2006.

One small detail seems to have escape[d] a lot of people's attention - and it's that Intel now formally marshals the competition in some interesting ways. Last year Intel and Taiwanese foundry TMSC signed an interesting agreement whereby TMSC is allowed to create variants of the Atom processor which are then rebadged as Intel designs and sold into the OEM channel.

In doing so, funnily enough, the PC chip market takes a step closer to the potato chip market. PepsiCo's Frito-Lay offers the illusion of competitive market by offering up apparently independent brands of snacks. You just wouldn't know it. Frito-Lay's UK operation is better known as Walkers, and Walkers still offers Smiths crisps in certain markets. ®

Read more of the story.

And read more of Andrew Orlowski.

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Sunday, July 25, 2010

Banks: Europe not too stressed, seventh in heaven in one day in US

Euro Falls as Stress Test Results Fail to Alleviate Banking Risk Concern
stress tests of European Union banks failed to identify sources of weakness that would aggravate the region’s debt crisis. Tests show that only seven banks flunked the EU’s crisis scenario.

EU regulators scrutinized 91 of the bloc’s banks to assess whether they have enough capital to withstand a recession and sovereign-debt crisis, with a Tier 1 capital ratio of 6 percent as a floor. Governments are seeking to reassure investors about the health of financial institutions after the debt crisis pummeled the bonds of Greece, Spain and Portugal.

The evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding to maturity, according to CEBS. That means the tests are set to ignore the majority of banks’ holdings of sovereign debt, investors said.

“There’s a lack of credibility,” said Brian Dolan, chief strategist at, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “They don’t think the scenarios were stressful enough.”
Europe's sovereign-debt crisis, April 29, 2010
Greece sounds three warnings that reach far beyond its borders.

The first is economic. Greece has become a symbol of government indebtedness. This crisis began last October when its new government admitted that its predecessor had falsified the national accounts.

[Guambat has just started reading the Reinhart & Rogoff treatis, This Time is Different, wherein they observe "we view the difficulties one experiences in finding data on government debt as just one facet of the general low level of transparency with which most governments maintain their books. ... Lack of transparency is endemic in government debt, but the difficulty of finding basic historical data on central government debt is almost comical."]
The second lesson is political. Playing for time has backfired. Now the mooted rescue plan has climbed above €100 billion because no private money is available. The longer euro-zone governments dither, the more lenders doubt whether their promises to save Greece are worth anything. Each time politicians blame “speculators” (see article), investors wonder if they understand how bad things are (or indeed that investors have a choice). Euro-zone leaders initially refused to seek IMF help because it would be humiliating. Their ineptitude has done far more than their eventual decision to call in the IMF to damage the euro.

This political and economic failure leads to the third Greek warning: that contagion can spread through a large number of routes.
Is a Sovereign Debt Crisis Looming?
February 2010 As the dust settles from the great financial crisis, skyrocketing government debt in advanced countries presents a new risk and is prompting calls for stimulus withdrawal. However, falling output, not stimulus spending, is by far the main cause of wider fiscal deficits. Accordingly, sustaining growth—not withdrawing stimulus—should remain most countries’ top priority if they are to break the debt spiral. Crucially, markets must remain confident in the major economies’ capacity to handle their fiscal affairs, hence the need for persuasive long-term fiscal consolidation plans.

Though markets are nervous about holding the sovereign debt of the smaller Euro area members, these countries’ problems should prove manageable—assuming the European economy continues to recover and neighbors help. Among the major economies, Japan offers the greatest source for worry in the medium term.

Since 2007, debt in seven out of the nine advanced G20 countries increased by more than 10 percent of GDP. By contrast, debt-to-GDP ratios declined or are little changed in eight of the ten emerging economies in the G20.

The bigger story is the effect of the recession on tax receipts and the automatic increase of spending on unemployment and other safety nets. Total expenditures in the United States grew from a historical average of 20.7 percent of GDP to 24.7 percent in 2009, while tax receipts are expected to fall to 14.8 percent of GDP in 2009 from an average of 18.1 percent. EU tax revenue is predicted to decline to 29.2 percent of GDP, down from 30.9 percent in 2008. Reflecting GDP decline, U.S. tax revenues fell by a remarkable 17 percent over the last year, while EU revenue likely declined by 8 percent.

With only a modest economic recovery predicted in advanced countries in 2010, government debt will continue to rise as a share of GDP.

If You Think Sovereign Debt Is Just A Greek Problem, Get Ready For It To Hit Home Soon May 7, 2010
Though the U.S. is considered to be the highest order of "prime" borrower, based on historic precedent, our debt to GDP levels are at crisis levels, and are not that much lower than Portugal or Spain. When off-budget and contingency liabilities are properly accounted for, one could argue that we are already in worse financial shape than Greece.

As Americans observe the chaos in Greece, most assume that the strength of our currency, the credit worthiness of our government, and the vast expanse of two oceans, will prevent a similar scene from playing out in our streets. I believe these protections to be illusory.

Once again the vast majority fails to see a crisis in the making, even as it stares at them from close range.

Read more:

Reinhart and Rogoff also make the point,
"Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crisis is that when an accident is waiting to happen, it eventually does."
And Guambat is only up to page 11.

Meanwhile, in the real world of stress testing,

Seven more US banks collapse on day of Europe's stress tests
More than 100 banks in the US have now collapsed so far this year after another seven were taken over by regulators late on Friday – the same day that seven European banks failed a financial health check.

With rising bad debts tied to commercial and residential mortgages, the number of US bank failures this year is expected to exceed last year's figure of 140. In all, the seven failed banks had total assets of $2bn.

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The separation of chuch and state-less

Israel Puts Off Crisis Over Conversion Law
The question of “who is a Jew?” is as old as the state of Israel. The more liberal forms of Jewish practice advocated by the Reform and Conservative movements, with which most American Jews are affiliated, have never taken root [in Israel]. Israel has left liturgy in the hands of the Orthodox, with most Israeli Jews leading almost completely secular lives, seeking out rabbis only at birth, marriage and death.

The idea is that helping to build the Jewish state is their central means of expressing their ethnic identity. By contrast, Jews abroad seek one another out in synagogues, and have come up with ways to integrate spirituality with identity, forging rituals that respect tradition while adjusting to careers and life in a non-Jewish world.

The two approaches to Jewish identity have coexisted, and while there have been tensions, they have not sharply clashed.

But several developments of recent years have altered that. First, the arrival of hundreds of thousands of Russian-speaking immigrants not considered Jewish has created an acute need in the eyes of Israeli leaders to find a way to integrate them in keeping with rabbinic tradition. Otherwise, they will not be able to marry, divorce or be buried here within Jewish tradition, and their children will feel deeply alienated. Mr. Rotem calls them “a ticking bomb.”

Second, the chief rabbinate, which for decades was in the hands of Orthodox Zionist parties, is now largely controlled by the non-Zionist ultra-Orthodox, who are both more liturgically rigid and less concerned with building Israel, integrating Russian speakers or keeping American Jews on board. This came about largely because the Zionist Orthodox movement had focused so heavily in recent years on settlement building in the West Bank and allowed control of religious issues to slip from its hands.

Finally, American Jews, who are mostly politically liberal — some 80 percent voted for President Obama — have felt their attachment to Israel strained during its military operations in Lebanon and Gaza and the recent attack on a Turkish flotilla seeking to break Israel’s Gaza blockade. And since the conversion bill is being sponsored by Yisrael Beiteinu, the nationalist and mostly right-wing party of Foreign Minister Avigdor Lieberman, conditions were especially ripe for mistrust.

“There is increasing discomfort among American Jews with Israel,” commented Rabbi Donniel Hartman, president of Jerusalem’s Shalom Hartman Institute, which is devoted to exploring Jewish issues. “This issue is a place where they can express the displeasure that they might not be willing to state on the flotilla and other political matters.”

A growing crisis between American Jews and the Israeli government over a proposed law on religious conversion was averted — or at least delayed — this week, with both sides agreeing to a six-month period of negotiation. But the depth of American anger and the byzantine complexity of Israeli politics suggest that a solution is a long way off.

The bill that so angered American Jewish leaders was actually aimed at making conversion easier for the 300,000 Israelis among the 1 million who moved to Israel from the former Soviet Union in the 1990s. Those Israelis are not, by Orthodox rabbinic law, considered Jewish because they come from mixed parentage. The law would have tried to make conversion easier by granting conversion powers to local rabbis across the country, a group considered closer to their communities.

But after objections from the ultra-Orthodox, the bill formally placed authority for conversion in the hands of the chief rabbinate and declared Orthodox Jewish law to be the basis of conversion, making Americans fear that their more lenient conversion processes would be invalidated.

Many American Jews consider the Netanyahu government to be too hawkish, and the conversion controversy is seen by some analysts here and in the United States as a proxy for a broader set of disagreements, including settlement building and the Gaza blockade.

Rabbi Shlomo Amar, the chief Sephardic rabbi of Israel, said in an interview that Mr. Netanyahu had told him that he needed American Jews on his side in his negotiations with President Obama over peace with the Palestinians, and that the controversy over the conversion bill was getting in the way.

Rabbi David Schuck of the Pelham Jewish Center in Westchester County, N.Y., said of the religious conversion bill, “It spits in the face of Diaspora Jews in particular, and if passed, it would be an acquiescence of the majority of Israeli Jews to a fundamentalist interpretation of Judaism.”

David Rotem, the lawmaker behind the conversion bill, said in an interview that such views were based on a misreading of it.

“They need to check the facts before they speak,” he said of Reform and Conservative Jewish leaders. “They are acting like absolute idiots.”

As David Horovitz, the editor of The Jerusalem Post, put it in his weekly column on Friday, “What we are facing is an explosive global crisis over Jewish identity — a huge, snowballing disaster that is ripping Israeli-Diaspora relations.”


Friday, July 23, 2010

Outsourcing financial reform

Guambat can't figure out why the "conservatives" were so recalcitrant in passing the Financial Reform package, such as it was. After all, one component, which may yet to prove more worthy than all the rest, was all about privatizing some of the enforcement provisions.

Of course, "conservatives" have long considered lawyering to not really be private industry. Just jealous of the privateering rewards, Guambat supposes.

For a little background, ever since the US Civil War, there has been a federal law which allows private citizens to bring "false claims" actions against other private parties who are cheating the government on their government contracts. The actions are brought by private parties with the consenting collusion of the government, and if the case is successful, the private party gets a share of the rewards. In the arcane language of the law, this sort of lawsuit is called a "qui tam" action. It is a form of action that is very much alive and well today, as these posts in Guambat's alter ego blawg discuss.

Financial reform law includes big cash incentives for whistle-blowers
A little-known provision in the huge package extends to the private sector a concept long applied to government contracts.

It gives whistle-blowers a mandatory 10% — and as much as 30% — of what the government recoups in fines and settlements in financial fraud cases. Awards are triggered only when the government recovers at least $1 million.

To claim a bounty, the whistle-blower must provide the Securities and Exchange Commission with "original information" that reveals the fraud and leads to a successful recovery. These can include insider trading, false earnings reports and classic Ponzi schemes.

"This is very significant and will have an immediate impact," said Erika Kelton, a Washington lawyer who has represented whistle-blowers. "It will motivate knowledgeable insiders to step forward and tell the enforcement agencies what they know. It is the secret weapon in this massive bill."

Goldman Sachs recently agreed to pay $550 million to settle a suit brought by the SEC accusing the investment banking firm of misleading investors who bought mortgage-backed securities just as the housing market collapsed. Had the case arisen from a whistle-blower's tip under the new law, "it would mean at least $55 million for the whistle-blower," Kelton said.

After the collapse of Enron Corp. and the passage of the Sarbanes-Oxley Act, companies tried to keep problems in-house by setting up hotlines and encouraging employees to tell top management if they saw questionable conduct.

Some employees may see an incentive not to report a problem internally, but instead "to go to the SEC with it," said Martin Rosenbaum, a Minneapolis lawyer.

"This is the most successful fraud-recovery program ever. It brings money back to the taxpayers," said Stephen Kohn, executive director of the National Whistleblowers Center in Washington.

"This is a not a get-rich-quick scheme for whistle-blowers," Kohn said. "Any time you are involved in a government investigation you are in for a long, drawn-out proceeding. But under this law, whistle-blowers win if they are right, and the government collects."

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Hush little baby don't you cry

Hey, it's just spilled milk. It's not like you did anything wrong.

Guambat has posted almost from day one in his now half-a-decade long blog about the hush money corporations pay the government to hush up instances of wrong-doing.

Just to keep the tally tallying ...:

IN a press release, Dell said Dell Reaches Settlement with Securities and Exchange Commission
The company and Mr. Dell entered into the settlements without admitting or denying the allegations in the SEC's complaint, as is consistent with standard SEC practice.

Dell Agrees to Pay $100 Million to Settle SEC Fraud Claims
Dell Inc. will pay $100 million to resolve U.S. Securities and Exchange Commission accounting fraud allegations in an accord that will let founder Michael Dell stay on as chief executive officer after paying a $4 million fine.

Dell, 45, and the personal-computer maker failed to tell investors about “exclusivity payments” received from Intel Corp. in exchange for not using products made by the chipmaker’s main rival, the SEC said today in a complaint filed at federal court in Washington. Those payments allowed Dell to reach its earnings targets from 2001 to 2006, the SEC said.

“Accuracy and completeness are the touchstones of public company disclosure under the federal securities laws,” SEC Enforcement Director Robert Khuzami said in the agency’s statement. “Michael Dell and other senior Dell executives fell short of that standard repeatedly over many years.”

Dell’s former CEO, Kevin Rollins, 57, and James Schneider, 57, the company’s former chief financial officer, agreed to pay fines of $4 million and $3 million, respectively. Schneider was suspended from appearing or practicing before the SEC as an accountant for five years. The SEC, as urged by the company in its settlement proposal, spared Michael Dell similar punishment.

“We are pleased to have resolved this matter,” Michael Dell said in a statement.

“In similar cases, you’d expect the SEC to seek a bar against a senior officer,” said Peter Henning, a professor at Wayne State University Law School. “He’s probably too important to the company and it would have caused too much harm to shareholders,” Henning said of Michael Dell.

Dell should have had Goldman's influence. It could have done much better.

U.S. SEC voted 3-2 to settle with Goldman Sachs
The two Republican SEC commissioners, Troy Paredes and Kathleen Casey, voted against the settlement. They also dissented when the SEC decided to file fraud charges against the bank.

Goldman agreed to pay $550 million to settle charges over how it marketed a subprime mortgage product, the SEC said on Thursday.

Goldman Sachs Doubled Lobbying Expenses Amid Financial Revamp, SEC Probe
Goldman Sachs Group Inc. doubled its lobbying expenses as it focused on proposed financial regulations and faced U.S. Securities and Exchange Commission charges that it misled investors.

New York-based Goldman, which paid $550 million last week to settle the SEC suit, spent $2.7 million to lobby during the first six months of 2010, more than double the $1.3 million it spent during the same period a year earlier, according to new congressional filings.

Just how much stern influence Goldies can bring to bear will be indicated in how much follow through, IF ANY, there will be to the following stories.

Goldman Sachs Can’t Say It Dodged This F-Bomb: Jonathan Weil
While the Securities and Exchange Commission’s fraud lawsuit against Goldman Sachs may be over, the myths about what’s contained in the settlement agreement seem to have taken on a life of their own.

There’s been so much misinformation floating around on this subject that it’s time to set the record straight. Contrary to many reports over the past week, the SEC didn’t back off any of its fraud allegations. Nor will Goldman be allowed to deny the SEC’s harshest accusations. Yet over and over, articles and analyst reports keep popping up asserting otherwise.

The SEC made two sets of claims in its complaint alleging that Goldman and Tourre intentionally committed fraud, i.e., the F-bomb. The first fell under a section of the Securities Act of 1933 called 17(a). The second was under the better-known Section 10(b) of the Securities Exchange Act of 1934 and an accompanying rule known as 10b-5, which, like 17(a) and 10(b), prohibits fraud in the sale of securities.

Goldman settled the case without admitting or denying the commission’s allegations, which remain unproven. Tourre is contesting the SEC’s claims.

With that backdrop, here are some of the myths that have found their way into the media food chain lately, and the reasons why they are bunk.

Myth No. 1: The SEC’s fraud allegations against Goldman have evaporated.

Not true. The judgment order in the case says Goldman “consented to entry of this final judgment without admitting or denying the allegations of the complaint.” It didn’t strike any of the complaint’s allegations. Neither did Goldman’s consent decree. Nor did the SEC amend its April 16 complaint.

The upshot: The SEC didn’t withdraw any of its fraud allegations against Goldman.

Myth No. 2: The SEC dropped its 10(b) fraud claim as part of the settlement.

This bit of fiction seems to stem from the fact that the injunction in the judgment order permanently bars Goldman from violating 17(a) in the future, but doesn’t contain any reference to 10(b). (The injunction, in effect, places Goldman on probation with the SEC.)

The reality is that the SEC’s complaint still contains an unadjudicated accusation that Goldman violated 10(b). The injunction is part of the remedy in the case, not part of the SEC’s allegations -- which remain unchanged. Had the SEC stricken the 10(b) claim from its complaint, Goldman would have been allowed to deny it violated this section of the law. However, the SEC didn’t do this.
SEC internal probe will look at timing of Goldman Sachs settlement
SEC Inspector General David Kotz said that he will look into "the circumstances surrounding the timing of the SEC's settlement reached with Goldman on July 16," according to a letter seen by Reuters.

The SEC's inspector general had already begun investigating the suit in April, after Republicans in Washington suggested political motives may have been behind the timing of the SEC's decision to sue Goldman over the marketing of the product, called Abacus 2007-ACI.

The commission had voted 3-2 to file the suit against Goldman, with the two Republican commissioners dissenting.

Republican Rep. Darrell Issa, R-Calif., had asked Kotz to open an initial probe into the timing of the suit in April. The letter Thursday, which agreed to expand the probe to look at the settlement's timing, was also addressed to Issa.

Republicans questioned why the SEC case was filed just before the Senate was due to start formally debating a bill to usher in new rules for Wall Street.

Stop Complaining, Wall Street By Daniel Gross
The Senate's passage Thursday night of extensive financial reform is being portrayed as a big loss for the financial sector. [But] only because the default situation for the last 30 years has been that the financial sector gets precisely the regulation it wants.

Given what the financial sector put the nation through in the past three years, the case for strong punishment was very compelling. But while there are provisions that the financial sector doesn't like, the legislation that is now headed to a House-Senate conference is in fact relatively tame.

What may be most striking to average Americans about the bill is actually how un-punitive it is.


The fox and the chickens' house

It is a fable from old that disaster strikes when you put a fox in charge of the chicken house.

And yet, here's Fox News allegedly providing daily, minute by minute, spoonfuls and bucket loads of unfair and unbalanced tripe from their talking head gnus**.

The Canadians, thankfully, put this in a stark message:

A nation of cowards?

U.S. Attorney General Eric Holder, was describing a country where the workplace is, for the most part, racially integrated, but where Americans self-segregate in their private lives and in their leisure activities.

"We have to have the determination to be honest with each other," he told justice department employees a few months ago, adding that, "in things racial, we have always been and, I believe, continue to be in too many ways, essentially a nation of cowards."

There has certainly been evidence of much cowardice over the past week.

It began when conservative activist and blogger Andrew Breitbart posted on his website a video of Shirley Sherrod, an employee with the U.S. department of agriculture.

Fox News, which has worked with Breitbart in the past, jumped on the video and began to air it, while several of its hosts branded Sherrod a racist.

The network interviewed Newt Gringrich, the former Republican House speaker, who expressed his outrage. Other Fox talking heads agreed and the network's star, host Bill O'Reilly, ended that first day by calling for Sherrod's resignation.

Other media then picked up the story and continued the onslaught.

Sherrod was not going down without a fight. She went to CNN headquarters in Atlanta with the complete tape of her 43-minute speech.

It exposed a vicious smear job that had been done, as Sherrod said, "by slicing and dicing."

A subtle but important element of her story: Sherrod was not a government employee 24 years ago, as Breitbert described her, when the incident in question happened.

Rather she was working with a non-profit agency that assisted black farmers when an impoverished white farmer approached and asked for her help.

Yes, she told the NAACP meeting, she had thought of not helping the white farmer, but quickly decided she couldn't do that. It was, she realized, her job to help all the poor.

The speech made the point that she recognized her prejudice and that "there is no difference between us."

On several occasions, she urged her audience to put race to one side and, in this particular case, she went on to help the farmer save his land.

To drive the point home, CNN went out and found that farmer, Roger Spooner, who agreed Sherrod had, indeed, saved his farm.

"I tell you what," he said. "I was never treated no better than Shirley."

At this point, it would be great to praise CNN. But the truth was that the network, too, had joined in the early coverage, slandering Sherrod.

At Fox News, O'Reilly apologized for the initial attack at least but never really explained how a doctored tape made it to air; nor what relationship Fox has or will have with Breitbart.

So we get back to the issue of cowardice that Attorney-General Holder talked about.

There can be little doubt the government and the NAACP reacted too quickly for the fear of being caught on the wrong side of the race issue.

The conservative media moved too quickly because it clearly felt it had some fresh meat to feed its viewers and readers.

The mainstream media didn't show the courage of its convictions — accuracy and fairness — probably because the big outlets are being continually attacked of late for not jumping on internet-inspired stories. Besides, they were getting reaction from the USDA and the White House. Why check further?

Then there is Breitbart. What would possess someone to try to make a scapegoat out of a 62-year-old African-American woman in rural Georgia whose whole life has clearly been centred around helping poor farmers, white and black?

Cowardice? There is more than enough here to go around.

Read more:

Andrew Breitbart was victim of 'fraud' in Shirley Sherrod 'racism' story, says Ann Coulter
Forget Shirley Sherrod, Andrew Breitbart is the real victim.

That's what Ann Coulter believes, anyway.

Breitbart has not apologized for the story, but insists it was never about Sherrod.

"This was about the NAACP attacking the Tea Party, and this is showing racism at an NAACP event," he said, arguing that the video showed people reacting with "laughter" at her remarks.

"The whole key to this story is that Andrew Breitbart was set up," the fiery right-wing writer told Sean Hannity on Fox News on Wednesday.

She argued that the conservative blogger was the victim of a "fraud" by the person who sent him the edited video.

"He was set up," Coulter said. "This was a fraud."

Read more:

** A gnu is the African word for what the the Dutch settlers called a "wild beast", or "Wildebeest".

Wildebeest are known for their annual migration to new pastures.
Although it is assumed that this migration is a frenzy and that the wildebeest cross blindly, recent research has shown that a herd of gnu possesses what is known as a "swarm intelligence", whereby the animals systematically explore and overcome the obstacle as one.

The primary defensive tactic is herding, where the young animals are protected by the older larger ones while the herd runs as a group.

Wildebeest have developed some additional sophisticated cooperative behavior and scientists are unsure how much is learned behaviorally and how much is hard wired into the DNA of the animal.

-- Source: Wikipedia


Thursday, July 22, 2010

Konsensual sex may not be Kosher sex

Some things just ain't kosher.

Israeli Arab who 'raped' a woman says verdict 'racist'
Sabbar Kashur, 30, was found guilty of "rape by deception" by the Israeli court and sentenced to 18 months in jail.

According to the complaint filed by the woman, the two met in a Jerusalem street in 2008 and had sex that day.

When she discovered he was not Jewish, but an Arab, she went to the police.

But according to Kashur, he did not pretend to be Jewish.

He told reporters that he is known by friends and family by the nickname Dudu, which is more commonly used by Jews called David.

He has been under house arrest for two years, he said.

In the court's ruling the judge, Zvi Segal, wrote: "If she had not thought the accused was a Jewish bachelor interested in a serious relationship, she would not have co-operated.

"The court is obliged to protect the public interest from sophisticated, smooth-tongued criminals who can deceive innocent victims at an unbearable price

Jurists say Arab's rape conviction sets dangerous precedent
In 2008, the High Court of Justice set a precedent on rape by deception, rejecting an appeal of the rape conviction by Zvi Sleiman, who impersonated a senior official in the Housing Ministry whose wife worked in the National Insurance Institute. Sleiman told women he would get them an apartment and increased NII payments if they would sleep with him.

High Court Justice Elyakim Rubinstein said a conviction of rape should be imposed any time a "person does not tell the truth regarding critical matters to a reasonable woman, and as a result of misrepresentation she has sexual relations with him."

Rubinstein said the question was also whether an ordinary person would expect such a woman to have sex with a man without the false identity he created.

Guambat presumes the rule would apply equally the other way round. Perhaps a defense to statutory rape?

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Tuesday, July 20, 2010

Expert texperts choking

Rating agencies to debt issuers: don’t cite us [UPDATED]
On Monday, in response to certain aspects of the D0dd-Frank Act, Fitch said it would not allow debt issuers to include its ratings in prospectuses or debt registration statements.

Looks like Moody’s beat Fitch to this one. According to a ’special comment’ issued by the former on Thursday July 15, Moody’s will also be declining to consent to the inclusion of its ratings in prospectuses and registration statements “without further study”.

Standard & Poor’s issued the following to clients and investors on Friday July 16

Here’s why

The Dodd-Frank Act repeals Rule 436(g) under the Securities Act of 1933 (the Securities Act), which relates to U.S. public offerings registered under the Securities Act. Before repeal, Rule 436(g) provided that credit ratings assigned by a Nationally Registered Statistical Rating Organization (NRSRO) are not considered a part of registration statement prepared or certified by an ‘expert’, as described within the meaning of sections 7 and 11 of the Securities Act, and the NRSRO consent would not be required to include credit ratings in Securities Act registration statements and any related prospectuses.

While Fitch continues to believe that it is not an expert under the plain meaning of sections 7 and 11 of the Securities Act, it is Fitch’s understanding that, absent clarification by the U.S. Securities and Exchange Commission (SEC), immediately after the Dodd-Frank Bill is signed into law an issuer will need to obtain Fitch’s written consent to include a Fitch credit rating in a Securities Act registration statement and any related prospectuses. If Fitch provides its consent for ratings to be included into Securities Act registration statements or prospectuses, Fitch will be potentially exposed to ‘expert’ liability under section 11 of the Securities Act, liability to which Fitch is not currently exposed.

The FT Aphaville post mentions other "problems" the ratings agencies have with the new Dodd-Frank bill. And it's about time. Worth a read.

Expert textpert choking smokers,
Don't you thing the joker laughs at you?
See how they smile like pigs in a sty,
See how they snied.
I'm crying.

-- The Beatles, I Am the Walrus

FOLLOW UP: SEC Breaks Impasse With Rating Firms
The Securities and Exchange Commission moved to defuse turmoil in the bond markets caused by ratings firms' refusal to allow their credit ratings to be used in deal documents.

Late Thursday the agency said it would temporarily allow bond sales to go ahead without credit ratings in bond offering documents, a move that would end an effective stalemate between ratings agencies and issuers.

The SEC's waiver will be in place for six months. But the SEC said its action doesn't change or negate the new laws governing ratings agencies that came into effect with the signing of the Dodd-Frank bill this week.

In an April letter to the SEC, the California Public Employees' Retirement System said "making credit rating agencies civilly liable for misstatements or omissions which they cause to be placed in securities offerings" would represent "a large step forward in deterring harmful conduct" by credit raters in the structured-finance area.


Monday, July 19, 2010

Don't wait, there's more

Guambat is fully aware he has been somewhat absent without leave of his senses of late, so you'll find a slew of stew today.

Although not a complete defense (he's just not been that impressed with the general news of late), he has been spending some time and effort elsewhere.


Not to worry: global warming will shrink it anyway

Iceland Loan Ruling Is Likely to Derail Bank Recovery, Fitch Ratings Says
Iceland’s financial crisis was exacerbated by banks that borrowed in currencies such as Japanese yen and Swiss francs to take advantage of lower interest rates, then repackaged them as kronur loans for clients. The krona has lost 39 percent against the yen and 30 percent against the franc since Sept. 15, 2008.

Iceland, the fifth- richest nation per capita as recently as 2007, faces litigation from creditors in the island’s banks, who sought to limit their losses last year by becoming shareholders

Iceland’s efforts to restore financial stability and scale back capital controls are at risk after a ruling last month made banks liable for foreign currency losses on some retail and corporate loans, Fitch Ratings said.

The June 16 decision by Iceland’s Supreme Court, which banned loans indexed to foreign exchange rates, may cost lenders as much as $4.3 billion, equivalent to one third of Iceland’s 2009 economic production, Finance Minister Steingrimur Sigfusson said earlier this month.

The ruling may force some banks to close as losses push capital adequacy ratios below the regulator’s 16 percent minimum requirement, said Financial Supervisory Authority Director Gunnar Andersen, in a July 9 interview.

The government, which is relying on a $4.6 billion IMF-led loan, says a second bank bailout would be a “severe blow” to its finances. Creditors, including Royal Bank of Scotland Group Plc and Credit Agricole Vita SpA, became shareholders in the banks after a state takeover in 2008.

“Banking crises are invariably protracted affairs that have the potential to inflict extensive damage on the sovereign’s balance sheet,” Fitch Senior Director Paul Rawkins said. “Iceland is proving no different from previous sovereign crises in this respect.”

Cold comfort?

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Tony who?

Mrs. Guambat, who pays the most uncanny attention to the most unexpected of things, asked Guambat, "whatever happened to that Tony guy."

"You know, the English guy. The one with the shiny, schoolboy face? He was all over the television."

"Did they kidnap him?"


But another excellent question.


No use crying over spilled melamine

OK, it wasn't melamine tainted milk, and maybe it is worth crying over. Picky, picky. Anyway, here's a couple of items from Guambat's former daily read.

Full-scale fiasco
YOU know that massive pollution disaster that killed millions of fish? If your answer to that was ''Yeah, yeah, BP's oil well in the Gulf of Mexico - what's new?'' you would be wrong.

A mining company in China was last week accused of killing the equivalent of 1.89 million kilograms of fish by allowing waste water from its copper refinery to get into a reservoir and river in Fujian province.

Where BP looks like having to pay billions in reparations for the damage its uncapped well on the gulf floor has caused (thanks to having the blowtorch of public scrutiny applied) Zijin Mining Group looks like getting off somewhat lighter - at least in a financial sense.

Reports from China's official Xinhua News Agency suggest that Zijin is being required only to fix the problem and compensate locals with an offer of three yuan for every kilogram of dead fish. That makes the potential payout about 6 million yuan, or a little less than $A1 million. Zijin is a $A13 billion company.

The Zijinshan mine, where the spill occurred, is China's largest goldmine. Zijin revealed the problem on July 3 and blamed weather conditions - excess rain had caused breaches of the waterproofing layers in a tailings dam, leading to water containing copper residues flowing into the Mianhuatan Reservoir and nearby Ting River.

Ten days later, Zijin released a more detailed statement, estimating that about 9100 cubic metres of waste water (about four Olympic-size swimming pools) containing ''acidic copper'' flowed into the Ting. It said the problem had been fixed and that the waters had returned to ''normal''.

A day later came the language that BP executives should note: "The accident reflects some deeper issues about the company," Zhao Jugang, a Zijin spokesman told Bloomberg. "We earlier said that the accident was a result of heavy rains, but it's not just that. We think closure of the plant and an investigation are very necessary."

Zijin revealed in May that the inspectors had been around between October and November last year, and that at Zijinshan the problem was that liquid run-off from discarded ore was flowing directly into a reservoir (not at that stage the Mianhuatan) without being treated.

While it is a listed company, its two largest shareholders are state-owned and hold more than 40 per cent of the company. In 2008 and 2010, both forced resolutions on to Zijin's annual meeting agenda that pushed the company to pay dividends and make donations for community wellbeing.

That those responsible for running the mine, along with the environmental manager, have now been arrested suggests Zijin is about to be made an example of China's commitment to the international community on overhauling its environmental behaviour.

China cleans up oil spill
Authorities in northeastern China have mobilised 1,000 vessels to help clean up an oil spill in the Yellow Sea caused by a weekend pipeline explosion and fire, the government said on Monday.

Dozens of oil-skimming vessels were working to remove the slick off the port city of Dalian following Friday night's accident which spilled an estimated 1,500 tonnes of crude into the sea, press reports said.

Another 1,000 local fishing vessels have been ordered to aid the clean-up operation, the Dalian government said in a statement on its website.

The spill, which initially covered 50 sq km had been reduced to 45 sq km as of Monday, the official China Central Television (CCTV) reported on its news website.

The Dalian government said the last remnants of the fire had finally been put out and it declared a "decisive victory" against the spill, but did not explicitly say whether the spill had been completely halted.

Two pipelines exploded at an oil storage depot belonging to China National Petroleum Corp near Dalian's Xingang Harbour in Liaoning province, triggering a spectacular blaze that burned throughout the weekend.

CNPC is the country's biggest oil company

See also, Zijin Expansion Stymied by China Gold Industry's Worst Spill in Two Years
It was the worst accident in the Chinese gold mining since July 2008, when runoff from a Zhongjin Gold Corp. site in Dandong poisoned the water supply of 210,000.

“The company will have to focus on cleaning up, and their expansion plans in and out of China may be put on a backburner” for the next year or two, said Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian Ltd.

Zijin Mining Group Co., China’s biggest gold producer, planned for two big foreign acquisitions this year. Chen planned to make two foreign acquisitions this year, after spending $200 million to buy convertible notes in Glencore International AG, the Swiss-based commodity trader that’s the biggest in the world.


Blameless in Chicago

And too bloody right, Mate!

After only 18 months in office, Americans Blame Bush, Not Obama, for Deficit, Jobs, Afghan War

The former Republican president is blamed more than President Barack Obama for the budget deficit, unemployment and illegal immigration, according to a Bloomberg National Poll conducted July 9-12.

Most surprising is that 60 percent say Bush is primarily responsible for the current situation in Afghanistan.

“They spent a decade driving the economy into a ditch,” Obama, 48, said at a Las Vegas fundraiser on July 8 for Senate Majority Leader Harry Reid of Nevada. “And now they’re asking for the keys back. And my answer is, ‘no, you can’t have the keys. You can’t drive. You don’t know how to drive. You drive in the wrong direction.’”

Of course, Obama hasn't yet shown he -- and more importantly the Democratic Party -- knows the way home, either. We need to see better leadership on banking regulation, immigration, health care, stewardship of the environment and economy, and our global standing. Start with cleaning house with a complete sweep of anyone or anything Goldman Sachs related.

These problems didn't start 18 months ago, and could not be solved by anyone in the remaining 30 months, but we need to be better positioned than a rolling stone.

How does it feel
To be on your own
With no direction home
Like a complete unknown
Like a rolling stone ?


Don't forget to eat your ECRI

Memories of Guambat's youth are fading faster than news of Obama's miracle emergence.

But he is sure he must have heard his Mum tell him to be sure to eat his ECRI. But what's an ECRI?

Now he's found out, and he's quite pleased he's avoided eating any since he left home.

A flashing red light from the ECRI
Friday’s breaking news is the annualized growth rate slowed to -9.8% from -9.1 for the week ended July 9.

At this level, the ECRI — which Lex says is noted for its prescience, longevity and impartiality in predicting business cycles — is flashing a great big warning sign that the US economy is going to double dip and head into recession.

A -10 per cent market nearly always signals a recession, apparently.

Click the link to see the chart. One picture is worth a thousand copyright claims.

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Bordering on Afghanistan

Mexico is beginning to look a lot like Afghanistan, which is bringing that war a lot closer to the home of the gringos. But it didn't happen yesterday, and it won't change manana. (Image left used without the permission of REUTERS/Goran Tomasevic; indulgence prayed for.)

Voice of America reported in 2009, "Representative Loretta Sanchez from California noted that Mexico has now deployed forty-five thousand troops [in the drug war] -- around the same number as the United States has in Afghanistan."

Back in 2006, NPR was telling us, Mexico's Drug Wars Leave Rising Death Toll:
Mexican and U.S. officials are meeting Thursday in Laredo, Texas, to discuss concerns about growing drug violence in Mexico. U.S. Ambassador Tony Garza has advised U.S. citizens to exercise extreme caution when traveling in Mexico because of "the rising level of brutal violence."

More than 1,500 people have died in narcotics-related killings this year alone. In recent months, dozens of people have been beheaded and tortured as cartels across Mexico fight for the lucrative drug-trafficking routes into the United States.

The state of Michoacan, best known outside of Mexico as the place where monarch butterflies winter, has the highest number of people killed — 400 so far this year. Mexican intelligence officials estimate that at least 65,000 people in Michoacan live off the drug trade in some way.
The New Yorker carried a piece in 2008 which tried to go a bit deeper than the usual newsbites we are fed. You should read it all; Guambat dare not copy the whole thing.

Letter from Mexico
Days of the Dead, The new narcocultura, by Alma Guillermoprieto
In Sinaloa, Javier Valdez Cárdenas, a reporter, columnist, and editor for the scrappy local newspaper Río Doce, is an exception to the general indifference.

Having for years made it his business to know a great deal about drug issues, he is a mandatory stop for Mexican and foreign journalists trying to figure out the Culiacán drug scene. Valdez is about forty, stocky, swarthy, and graying, but there is something of the cocky teen-ager in his manner. We had lunch on a scorching Culiacán afternoon, and he recited with studied weariness the stages of his home state’s emergence as the crucible of Mexico’s drug crisis.

It was in the late nineteenth century, he said, that the opium harvest first became visible, encouraged by the arrival of Chinese immigrants who had come to build a railroad. There was, he added, the long-standing local use of marijuana, particularly by Mexican soldiers, who got through the useless hours of patrol and guard duty with the help of a spliff or two. There was the almost certainly apocryphal—but nevertheless widely believed—story that during the Second World War the United States urged Sinaloa to boost its (illegal) production of opium in order to meet the medical needs of G.I.s wounded in combat.

There was, for real, the gigantic marijuana boom in the nineteen-sixties, fuelled by demand in the United States. And, Valdez noted, there was the notable decline in illegal crop harvests in the late seventies, as the result of a series of violent and ambitious assaults on growers carried out by the Mexican federal police with the support of the Mexican Army, and with the energetic encouragement of the United States Drug Enforcement Administration.

“That was when the drug trade really began to expand,” Valdez said. “Because the few traffickers who remained here were killed, but all the rest of them emigrated. Now they’re all over the country.”

Forty years after Operación Intercepción—which was followed by Operación Cooperación, Operación Cóndor, and other drug-war initiatives—as much as thirty per cent of Mexico’s arable land is suspected of being under cultivation for clandestine crops, drug violence in Sinaloa has taken a quantitatively different turn, and the Sinaloa traffickers have generated entire dynasties of criminals who are at war in nearly every one of Mexico’s thirty-one states, as well as Mexico City.

The exiles who left Sinaloa for Tijuana, Guadalajara, and Ciudad Juárez in the nineteen-seventies included members of the Arellano Félix family; a bold operator called Joaquín Guzmán; and a schemer with a talent for international relations, Amado Carrillo.

They and their elders spent the next two decades collaborating with Colombia’s drug kings on clandestine routes for delivering cocaine and marijuana to the United States. Beginning in the mid-nineties, after Pablo Escobar was killed and his main rivals were arrested, the Mexican associates assumed their rightful position in the global drug economy.

The main access points to what is by far the largest market for drugs in the world are, after all, in Mexico. By the turn of the millennium, Mexico was exporting heroin and marijuana, transporting the majority of Colombian cocaine, and collaborating with Chinese traders in the production and export of methamphetamines. The Sinaloa traffickers, who had not necessarily remained friends, controlled access to all the major border points, with the exception of the ones in the Gulf Coast state of Tamaulipas. Those, the government believes, were the domain of Osiel Cárdenas, a particularly violent local trafficker.

With its key border cities of Nuevo Laredo (on the other side of the Rio Grande from Laredo) and Matamoros (across from Brownsville), the state of Tamaulipas is a coveted prize that Osiel Cárdenas’s former associates now control. They are, for the most part, ex-members of an élite Army anti-narcotics unit, operating under the code name los Zetas, and they have drastically upped the ante on all forms of violence; the practice of beheading their victims is one of their signal contributions to the drug trade.

What is certain is that the campaign that has filled Mexican life with daily news of vicious crime—torture, kidnappings, beheadings—is being fought by Chapo Guzmán against his former allies. These include, first of all, the Beltrán Leyva family, which allegedly ordered the murder of Edgar and which, it was reported last week, may have infiltrated the U.S. Embassy in Mexico. But Guzmán is also locked in combat with the remaining members of the Arellano Félix drug clan, in Tijuana; with the brother of the plastic-surgery victim Amado Carrillo; and, above all, with the heirs of the Gulf Coast empire created by the extradited Osiel Cárdenas. The fight is over drug routes, particularly those that end in Tamaulipas and serve as access points to the United States, and over profitable illicit local businesses like prostitution and the smuggling of illegal immigrants. Included in the territorial bounty is the right to control an unknown number of the police and the military—cops and commanders both—who moonlight as the traffickers’ henchmen.

Felipe Calderón, a member by family tradition of the conservative Partido Acción Nacional (PAN), took over as his party’s second President of the current era in December of 2006, following seventy years of uncontested rule by the Partido Revolucionario Institucional, or PRI.

Calderón’s election was contested, and he was perceived by much of the electorate as a weak leader. The need to overcome this impression may have been a factor in his decision, almost immediately upon taking office, to involve the military in renewed combat against the drug trade—a fight that his predecessor, Vicente Fox, had less visibly pursued.

Troops are now deployed across the country, resulting in mounting tension between the local security forces and the federal troops. Quite a few high-level arrests have been made, but drug crimes have increased wherever the troops patrol, a consequence of what several people I talked to described as “stirring up the chicken coop.” A certain nostalgia for the days when the PRI was in charge and the drug traffickers knew their place would have been unthinkable a couple of years ago, but it has encouraged old PRI-istas to believe that the party can return to power in the 2012 elections.

In large part, though, it was the PRI’s defeat — or, rather, the long-withheld recognition of its defeat — and the dawn of real electoral politics that led to what appears to be the drug trade’s thorough infiltration of the political parties.

This last according to a PRIista whom I shall call Héctor, who enjoyed a long and successful national career before retiring to his home state. In the old days, much of the money for what was essentially a ceremonial presentation of the candidate to his subjects came from the vast coffers of the one-party state. Modern media campaigns put an end to all that.

“Thanks to the television stations, our campaign needs multiplied,” Héctor explained. “A congressman’s electoral campaign can now run to sixteen, seventeen million dollars.” Where is such money to come from? Informed opinion has it that each of the major drug groups now has ties to significant numbers of politicians in its party of choice, if not to the party itself.

As for the current military offensive, Héctor gave a little snort of disgust. “When you see what amounts to a military parade in these towns, in which the Army is trooping along on the main avenue while on the side streets people are killing each other . . . when I see how these people”—the traffickers—“are climbing up right into the very beard of the state, I think, Holy fuck! This country could really collapse!”

There remains the problem of corruption. Several new vetting agencies, Monterrubio said, will conduct ongoing polygraph tests and background checks on all law-enforcement personnel. In the old days, there was a de-facto agreement between the government and the traffickers that the traffickers would kill each other among themselves. “But now,” Monterrubio said, “the traffickers have realized that they can use the murders to send a message through the media. It’s narco-terror.”

“In the end, it’s all absurd,” Froylán Enciso, a friend of mine who is a historian specializing in the drug trade, remarked the other day. “The class solidarity between the troops and the growers is far greater than the soldiers’ need to obey orders.

Read more:
As said above, you should read the whole story. Get the goods on the guys and their hoods.

But, to get a taste of the culture of Mexico you probably don't know, be sure to read the part about Enriqueta Romero Romero, known as Queta, or Quetita, her shrine of the Holy Death, and her scrawny little plastic La Santa Muerte.

Now this is a small extraction from an article posted over 3 years ago, in May 2007, by the Council on Hemispheric Affairs:

Mexico’s Drug War: A Society at Risk – Soldiers versus Narco-Soldiers
Today, Mexico is a country dangerously devoid of any security; a country which cannot defend itself against a pathological danger that has rendered its citizens completely vulnerable to what is little better than a state within a state. Along with the endemic corruption is an unacceptable level of domestic and imported crime and a surge of weapons for which a deeply complicit Washington shamefacedly does little better than shrugs its hands.

A January 29 article in the Mexican daily Reforma found that between 2001 and November 2006, a total of 99,767 members of the armed forces deserted, of which 88,889 were from army units. This means that, on average, 46 soldiers deserted every day from the Mexican army.

It is also important to note that the military salaries for troops as well as non-commissioned officers is low, while the annual budget for the entire armed forces is estimated to be a modest $3.1 billion. The question remains as to how a military with no direct external enemies manages to spend even this relatively modest budget.

More mysterious and less transparent than the regular Mexican military are Los Zetas. Little is known about the members of the “military wing” of various drug cartels, in part in order to spare the Mexican military of the embarrassment that scores of former special forces have been lured into being criminals for much higher wages. It is known that Los Zetas are more often than not former members of the Mexican Special Air Mobile Group.

Despite some successes as a result of the military’s crackdown operations, Mexican drug cartels do not appear to be visibly shaken as the violence at their hands continues to rage.

In 2006, over 4,000 were killed in Mexico in drug-related violence. So far this year, according to various unofficial Mexican newspaper accounts, between 900 and 1000 people have fallen.

On May 16 alone, over 30 people died across the country in cartel-related violence in the bloodiest day since Calderón took office. A shootout that day between the Mexican police and drug hitmen (it is unclear if they were Zetas) left 15 suspected criminals dead, along with five policemen and two civilians. The firefight took place on a ranch in the state of Sonora, around 100km from the border with Arizona.
Now, to November 2008: Mexico's Spreading Drug Violence
Mexico's economy is slowing. But one sector is doing a brisk business -- the funeral industry near the U.S. border (Reuters).

Since Mexican President Felipe Calderon began his offensive against drug cartels and organized criminals in December 2006, drug-related killings have escalated, as has the need for undertakers.

He has deployed over thirty thousand soldiers across the country, purged several police forces of corrupt members, and pushed a judicial reform package through Congress. But the violence has only mounted.

More than four thousand people have died in drug-related violence this year, up from more than 2,500 deaths in 2007. The escalation is so great that drug gangs are widely suspected of causing the plane crash in early November that killed the interior minister

The drug cartels' infiltration of the police, judiciary, and political parties has severely compromised the government's ability to fight the drug cartels, some experts say.

"International drug cartels pose an extraordinary threat both here and abroad," said U.S. Attorney General Michael B. Mukasey in September 2008. Mexico's drug gangs could be a greater threat to the United States than global terrorism, adds John P. Sullivan of the Los Angeles Sheriff's Department.

Calderon has sought U.S. assistance to tackle the problem. A new aid package known as the Merida Initiative (PDF) will provide $400 million in equipment and communications systems this year, with plans for further funding in the next two years. Some Mexican and U.S. analysts criticize the package for its focus on equipment rather than training and institution building. Others note that the package does not address how to reduce U.S. drug demand.

In early 2009 the Voice of America reported Growing Drug Violence Shakes Mexico, Threatens to Spill Into US
More than six thousand people died last year in Mexico's drug wars. So far this year the violence has only gotten worse. More than one thousand people have already been killed.

Police have become common targets, especially in border cities in northern Mexico.

American officials recently announced results from an operation aimed at Mexico's Sinaloa cartel, which also sends drugs to Canada. They announced hundreds of arrests in the United States and the seizure of twenty-three tons of drugs.

And, this week, President Obama nominated the police chief from Seattle as the new director for the Office of National Drug Control Policy.
Around the same time, McClatchey news reported on all the talk but not any action, Drug violence pushes Mexico to top of U.S. security concerns:
The administration announced Tuesday that it's sending more federal agents and high-tech equipment to the U.S.-Mexican border in an attempt to blunt violence in both countries. One aim is to stanch the flow of U.S. weapons into Mexico, which Mexican officials say is fueling the drug wars.

"This issue requires immediate action," Homeland Security Secretary Janet Napolitano said on Tuesday. "We are guided by two very clear objectives. First, we are going to do everything we can to prevent the violence in Mexico from spilling over across the border. And second, we will do all in our power to help (Mexican) President (Felipe) Calderon crack down on these drug cartels."

Omitted from the steps, which build on programs begun under the Bush administration, is the deployment of 1,000 additional National Guard troops requested by Texas Gov. Rick Perry and Arizona Gov. Jan Brewer.

Perry and Brewer praised the White House announcement, but reiterated their requests for National Guard troops to back up border agents and local law enforcement agencies.

The dispatching of more customs, border and federal firearms agents to the border comes on the eve of a string of high-level U.S. visits to Mexico, beginning with Secretary of State Hillary Clinton on Wednesday and Thursday. She'll be followed next week by Napolitano and Attorney General Eric Holder, and later in April by Obama.

Clinton's talks also will focus on the global economic crisis and a long-running dispute over the entry of Mexican trucks into the U.S. under the North American Free Trade Agreement.

It's the drug violence that's dominated headlines and captured U.S. political attention, however.
Guambat reckons it's hard not to notice the headlines, like these from today:

Mexico car bomb: 'Colombianization' of Mexico nearly complete
A well-orchestrated car bomb exploded in Ciudad Juarez late Thursday, across from El Paso, Texas, killing at least three and sparking panic among the Mexican population. It is the first known use of a car bomb against authorities and the local population, and marks a troubling new level of violence as traffickers seeking to control the drug trade battle one another and Mexican authorities.
Drug Gang Suspected in Mexico Party Massacre
The gunmen, who struck around 1:30 a.m., were traveling in a convoy of eight cars, witnesses told local media. Without warning they entered the party and began firing indiscriminately before escaping.

“They shot anything that moved,” according to a local police source quoted in the newspaper El Norte.

Among the dead were five women. Although the vast majority of the nearly 25,000 people killed since President Felipe Calderón began his attack on drug gangs in December 2006 have been men, women have increasingly become targets.

The police said that 18 people were wounded in the birthday party attack.

Meanwhile, Inside Mexico's Drug War, Americans Allege Abuse
Two Americans were driving back to El Paso, Texas, last December after an afternoon across the border in Ciudad Juárez. A few blocks from the border, they were surrounded by Mexican army trucks and pulled from their Dodge Ram.

Two soldiers later testified that they drove the two Americans to a military compound on the outskirts of town, questioned them briefly, then turned them over to civilian authorities. The Americans were charged with possession of marijuana with intent to sell.

Those two men — Shohn Huckabee, 23 years old, and Carlos Quijas, 36 — are being held in a Ciudad Juárez jail. They tell a different story about what happened that night. They say Mexican soldiers planted the marijuana in their truck. When they arrived at the military base, they say, they were blindfolded, tied up, hit with rifle butts, shocked with electricity and threatened with death.

Mr. Huckabee says he was subjected to similar tactics. "I believe what was done to me was torture," he said in an interview. "When I did not answer their questions, they shocked me with a wire that was in my hands. My whole body froze up. The pain went from bearable to a point where I couldn't even talk."

Mexican prosecutors say the two men were caught red-handed. Two soldiers involved in their arrest testified at their trial that they counted 99 packages of marijuana in the suitcases, weighing more than 100 pounds.

Messrs. Huckabee and Quijas say they've never been involved with drugs and would never have tried to cross the border with two suitcases of marijuana. During their trial, they produced three witnesses who testified that they saw soldiers put suitcases into Mr. Huckabee's truck.

The army previously has dismissed complaints of abuse as the work of people allied with drug traffickers who want to drive soldiers out of Ciudad Juárez. "Many times they make human-rights complaints because they want to limit our capacity for action and besmirch the institution," said Brigadier Gen. Jesús Hernández Pérez, commander of the 4th Artillery Regiment, in an interview late last year.
The article contains much more detail of the incident. It won't make you want to vacation in Mexico.

There's just so much more that could be said, and there are plenty of people with other agendas to do so.
For Guambat, he's just sad. He really likes Mexico and its people. He's going to retire back into his burrow now and mix up a jug of Margaritas.